Home Price Vs. Interest Rates

I have several lenders that I trust & refer my clients to. I've worked with many, but I keep a handful that I know will always get the job done and treat my peeps with kindness and respect.

So much talk about the changing of the market. How much of a correction, when, interest rates, etc.

I definitely expect a correction. As inventory grows, prices don't escalate. Sellers get a bit anxious and price reductions are a plenty.

As interest rates climb, buyers get a bit timid.

Millennial buyers have never seen the interest rates over 5% in their adult lifetimes. They don't remember the adjustable 8.5% loans that we got excited over. They have no real knowledge of a 12% mortgage rate. Nor do they have the concept of a house costing only 27k or 70k, or a 2500 sq ft home in Valencia for 263k.

But, for today's blog, it's about now. Where the prices are likely going & the other half, where interest rates are apparently going as well.

The copy & paste below is from one of my preferred lenders. Just so you realize I'm not the only one talking about this future market happening .........

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Lately we’ve been getting quite a few questions regarding the state of the market, and if we believe that values are going to drop significantly.

While no one has a crystal ball, we’ve definitely seen a shift from the seller’s market we were in for so long, to more of a buyer’s market in latter part of 2018.

What we’ve also seen is a consistent rise in interest rates, that when combined with rising prices, and concerns of a correction, have made for nervous prospective buyers!

While no one can guarantee the direction of home values (or interest rates), we thought a mathematical comparison of rates vs. cost might be helpful to some folks still unsure of how they’d like to proceed

Here’s our hypothetical scenario-

$600,000 purchase price

$60,000 down payment

$540,000 loan amount

5% interest rate

$2,898 Principal and Interest payment

Now, let’s take a look at what happens should values fall 10%, but rates rise by 1%-

$540,000 purchase price

$54,000 down payment

$486,000 loan amount

6% interest rate

$2913 Principal and Interest payment

As you can see, a lower price doesn’t help much for affordability, if the cost to borrow has risen.

Although market trends are subject to change, a 6% 30 year fixed doesn’t seem far-fetched, given the Fed’s stated plan of five rate hikes between now and 2020; as a matter of fact, 6.5% doesn’t seem too far-fetched, when looked at through that lens.

If you’re still on the fence, remember to consider the cost to borrow when doing your math; in all likelihood, that may be increasing significantly, soon.

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Me again. So, expect these changes & talk with me, + my lender(s), to decide if you want to quit paying rent today and start the benefits of owning your own home tomorrow.